BankThink

Don't be too quick to give up on tech

Editor’s note: A version of this first appeared on Chris Skinner’s blog, The Finanser.

A common response to emerging technology is for bankers to test it. Yet the problem with testing technology is that it is just a test, a false implementation. A test is not designed for reality and it can lead to false results.

For example, I remember a U.K. bank was testing new technologies in one of its branches to see if it should scale the pilot to all of its branches afterward. The test involved video tellers, biometric ATMs and many other innovative ideas. The bank felt that some of the ideas were OK, but dismissed the biometric ATM as too intrusive for customers. I went back to the bank some years later and talked about biometric ATMs. They said, “Oh no, we tried them and they don’t work.”

What’s interesting here is that the first biometric ATM the bank tried to use was based on an iris scan technology that, yes, was too intrusive for customers who felt it involved too much hassle. However, the second biometric ATM used palm prints, which work well. The challenge, though, is to get the bank’s decision maker to understand that the technologies are two different things.

It’s a prevalent problem in the industry. Banks worldwide test technologies all the time, and often, they are testing the technology before it has reached prime time. As a result, by the time the technology is ripe, the bank believes it isn’t the right technology because of its test results from three, four or five years before.

Therefore, these tests can create negative effects. It is why some banks lag behind in technology adoption: They believe they are innovators, always trying out new technologies, but they are actually laggards, rejecting new technologies and avoiding revisiting them because of false test results on technologies tested too early.

It is pretty hard to change this position, as testing and piloting is a core part of some financial cultures. I actually heard one banker say during a conference that the bank had more pilots than American Airlines. Yep. But it is a major barrier to change if the bank tries and rejects technologies when the technologies are before their time.

I fear it may well be the path that blockchain takes. Many banks get excited about distributed ledger technology, which is different to but related with blockchain, and test an idea related to it. Then they say they’ve tried distributed ledger technology and blockchain technologies and it’s not for them — even though this technology is still way off from prime time. For example, if you know of any financial institution that is using ethereum smart contracts, tell them it is very early. Ethereum had to reboot in 2016 due to the hack of the DAO, a venture-capital fund. At the time Vitalik Buterin, the visionary young creator of the technology, said, “This is just an experiment right now.” Banks cannot base the mission-critical systems of a bank on an experiment, and yet some are trying to do just that and rejecting the idea after testing it.

This is where the critical path occurs, and where the banks rejecting ethereum will miss out. At some point soon, the technology will be ready for prime time. Some bankers will say, “Ah, we tried that and it doesn’t work,” while others will have a different view and say, “Keep checking in with ethereum to see how it’s doing.”

It is the latter culture that wins. They don’t test and reject, but they test and retest and retest until it works. This is the core difference between financial technology leaders and financial technology laggards. A leader never tests and rejects a technology. They test and see if it’s something that can be internalized and, if the answer is no, they go back to the drawing board and start again. They create a continuum of testing loops that is always open and never closed. That way, yes, a bank can have more pilots than an airline, but at least it is flying.

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Digital banking Distributed ledger technology Fintech
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